Friday, September 18, 2009

Standing to Sue: When Must an Exclusive Licensee Join the Patentee?

AsymmetRx, Inc. v. Biocare Med., LLC, No. 2009-1094 (Fed. Cir. Sept. 18, 2009):

Holding:

When a patentee retains substantial control over the patent rights it was exclusively licensing such that it did not convey all substantial rights under the patents, it did not make the license tantamount to an assignment, and the exclusive licensee must therefore be considered a licensee, not an assignee, and thus cannot sue for patent infringement without joining the patentee. Slip op. at 12.

Relevant Facts:

The AsymmetRx License effected a broad conveyance of rights to AsymmetRx by Harvard, but Harvard retained substantial interests under the patents, including that (1) if AsymmetRx elects not to exercise its right to sue, Harvard has the right to bring its own infringement action, (2) Harvard retained the right to make, use, and license the invention for academic research purposes, (3) Harvard retained a great deal of control over aspects of the licensed products within the commercial diagnostic field, and (4) AsymmetRx was required to grant sublicenses suggested by Harvard.

Comments:

It is well settled that whether an exclusive licensee has the standing to sue on its own (i.e., without joining the patentee) depends on whether the transfer of a particular right or interest constitutes an assignment or license. Of course, “whether a transfer of a particular right or interest was an assignment or license did not depend on the name applied to it, but on the intention of the parties as revealed by the record.” Slip op. at 7.

Determining whether the transfer of a particular right or interest constitutes an assignment or license, however, is fact intensive and can be complicated.

The cases whether the courts have found the standing to sue:

Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875 (Fed. Cir. 1991): Here, the right to sue was granted in its entirety, subject only to the obligation to inform the patent owner of the existence of the suit. The only rights under the patent that the patent owner retained were a veto right on sublicensing, the right to obtain patents on the invention in other countries, a reversionary right in the patent in the event of bankruptcy, and a right to receive infringement damages.

Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1251 (Fed. Cir. 2000): The license grant was not subject to any prior-granted licenses or to any retained rights by the licensor to practice the patent. It did not grant the original patent owners “the right to participate in an infringement action brought by [the licensee], nor [did] it limit [the licensee’s] management of any action.” In addition, the Federal Circuit found that a clause allowing the patent owners to bring their own infringement action if the licensee failed to do so within three months was an “illusory” retention of the right to sue because the licensee could “render that right nugatory by granting the alleged infringer a royalty-free sublicense.”

The cases whether the courts have found no standing to sue:

Abbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1132 (Fed. Cir. 1995): The Federal Circuit found that the patent owner had retained too great an interest in the patents to enable the licensee to sue for infringement on its own. Those interests included “a limited right to make, use, and sell products embodying the patented inventions, a right to bring suit if [the licensee] declined to do so, and the right to prevent [the licensee] from assigning its rights under the license to any party other than a successor in business.” The agreement also stated that if the patent owner asked the licensee to bring suit against an alleged infringer and the licensee declined to do so, the patent owner had the right to bring its own infringement action. In addition, even if the licensee did exercise its option to sue for infringement, it was obligated under the agreement not to “prejudice or impair the patent rights in connection with such prosecution or settlement.”

Key Question?

Is your case more similar to Abbott or to Vaupel or Speedplay in terms of what rights the patentee retained under the patents?

In addition, as a practical note, if the exclusive licensee does not have the standing to sue on its own, it should try to join the patentee. However, if the patentee, being within the jurisdiction, refuses or is unable to join an exclusive licensee as co-plaintiff, the licensee may make it a party defendant by process and it will be lined up by the court in the party character which he should assume. Slip op. at 8.

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